2010 December » Tax Research UK

The CBI needs to keep calm

Corporation Tax, Country-by-country, Tax avoidance, Tax justice 3 Responses »

Dec 312010

Richard Lambert at the CBI had a letter in the FT this week in response to their first rate editorial on tax shortly before Christmas. He said:

Your editorial “A taxing world” (December 22) made the startling comment that the payment of corporate tax has been turned “largely into a voluntary gesture by the well-run multinational”. The reality is that most companies, large and small, pay substantial amounts of tax. Corporation tax receipts are close to 10 per cent of UK tax receipts, and the overall business tax burden amounts to about a quarter of the total: business also collects more than another quarter on behalf of the government via Pay As You Earn. Far from being a soft touch, the steady exodus of multinational companies and mobile talent to other jurisdictions demonstrates that the UK’s status as an international business location is being threatened by its heavy-footed approach to business tax.

Even more extraordinary, your comment fails to tackle the arguments now being presented by supporters of UK Uncut. The idea that public spending cuts could be significantly offset if only big business were to pay its “fair share” of tax is disingenuous, and is based on numbers that are tenuous in the extreme.

Finally, the editorial confuses the issues of country by country reporting with “formulary apportionment”, a reference to the forthcoming European Union proposal for a Common Consolidated Corporate Tax Base across Europe. The latter is no panacea for resolving the complexity of the international corporate tax system.

Economic recovery and job creation in the UK over the next few years will depend on growth in business investment and trade. So it is important to build on the strengths of the UK as a business location, and to tackle head on arguments that give a misleading impression of the role that business plays in our society.

Richard Lambert,

Director-General,

CBI (Confederation of British Industry)

I think Richard Lambert needs to be a little more realistic.

First tax avoidance is real. We know it is. He should not pretend otherwise.

Secondly although the lovers of neoliberal economics say that if it were to be eliminated the incidence would all be on consumers with the very greatest of respect that is utter nonsense. It assumes that all those undertaking it are monopolists and consumer pressure has no influence on pricing. I presume Richard Lambert believes in markets, in which case a significant reason for tax avoidance is that it benefits owners of capital not consumers and its elimination would do the reverse – to the benefit of the society from which he demands so much ion order that his members can make profit.

Third, no one is saying eliminating corporate tax abuse will stop all cuts. Hitting tax evasion will have more impact and even then the issue will not be resolved by tax collection alone. But tackling avoidance, evasion and late payment will help and to deny it is just plain wrong. Nor are the numbers tenuous. They’re the best we’ve got and the Revenue agree corporations have the highest tax abuse rate – something Lambert can’t avoid. Claiming that PAYE collected somehow gets round this fact is a lot more tenuous: it’s just wrong.

And Lambert is also wrong to say because country-by-country reporting and formulary apportionments aren’t panaceas they shouldn’t be used. Tell us why not, please? And what’s your alternative?

Lambert’s letter is a spectacular case of the “man doth protest too much”. Get down and discuss the detail Richard. No one is saying what you’re suggesting. Now try and engage with the debate we are creating. That’s not too much to ask, is it? I’m open to meet at any time.

Paul Mason on 2011

Politics Comments Off

Dec 312010

Paul Mason of NewsNight has been pretty audacious in his forecasts for 2011. He ahs 10, all worth reading. Here are two I like:

A rash of Labour-aligned think-tanks will appear
Labour has learned that it lost the intellectual battle while in office to think tanks on the fringes of Conservatism – the Taxpayers Alliance, Migration Watch, Countryside Alliance, Policy Exchange etc. Funded by the unions it will create the equivalents – hardline fighters for core, "gut" Labour values – leaving the IPPR and Demos looking a bit like last year’s thing.

Finally, audaciously, because I’ve already said it on the recording of tonight’s R4 programme….
The Coalition will fall. Not because of protest, not because of unpopularity but because everytime it tries to do something serious a bit falls off the machine. If they don’t get AV and Vince Cable does not get radical banking reform, then by the time the public sector job losses are eating into their popularity, around party conference time, the Libdems will call it a day. Even more audaciously I will predict the outcome: no election but a Second Coalition to be formed between the Conservatives, an inner core of Orange Book Libdem leaders and various Unionists, with a slim majority. One or two Labour rightwingers, disgruntled by Ed Miliband, may also be tempted to join. Cameron will face down the Conservative right and embrace Coalition government as a modus operandi until 2015. Labour, locked in a policy review process and possibly still reeling from [the Chilcot Review], will avoid an election.

I but the first. It’s vital and low cost for the unions.

I’m not sure I buy the second. But it’s an interesting hypothesis.

Hat tip to Howard Reed

2010 in view

Economics, Tax justice 2 Responses »

Dec 312010

I am still technically on holiday, and admit to be really enjoying the break, but it is normal to review the year gone by and to look forward to the next.

What have the successes of 2010 been? There have been lots:

Country-by-country reporting has been the subject of three international reviews – by the European Union, International Accounting Standards Board and Organisation for Economic Cooperation and Development. That is an extraordinary advance.

The general increase in the awareness of tax justice issues has been enormous. Full credit to the TJN (and its director John Christensen), many NGOs active in this area, the TUC and PCS and more recently to UK Uncut even if I have no real clue who they are. The fact is a narrative that says there is an alternative to cuts is being created.

The EU crackdown on zero ten in the Crown Dependencies is a big step forward – and one I had long predicted.

At the year end EU moves towards enhanced tax cooperation are very welcome and presage an enhanced EUSTD in 2011. I am aware some disagree but my sources make me confident.

This blog was also a personal success, with massively increased traffic. Thanks to all for support even if the right wing blogosphere continued to prefer ad hominems to any constructive debate – a scenario that I do not expect to change.

I’m sure there are more – his is just a reflection.

There has been some serious setbacks too.

We got the ConDem government who in turn delivered the biggest political disappointment of the year in the form of the Lib Dems.

And we got Osborne and the revival of neoliberalism and class warfare from those with wealth on all the rest in society in a vicious attack whose full consequences have yet to be seen.

The OECD were another massive disappointment, failing to deliver on the tax haven agenda in a display of either incompetence or deliberate neoliberal subterfuge; I’m still not sure which.

And there has been the failure to tackle banking and finance. This sets us up for another failure all too soon, whilst fuelling the very obvious and growing tensions in society.

And let’s be honest – we saw no inclination of change in the behaviour of the bankers and their acolytes, including the Big 4.

So there were disappointments

May 5

Alan Johnson as shadow chancellor (bring on Ed Balls, please)

Vince Cable

Every unnecessary cut (that’s all of them) and the failure, so far, to get the message across that they are not needed.

But some highs too

The tax gap is now a political issue – and a big one.

People are no longer willing to lie down and accept the abuse thrown at them by the Tories.

The reaction to the report I wrote on Northern Ireland and its tax for the UK and Irish TUC’s.

Working with so many great people.

The conference I attended in Yale in December.

And much more.

It would be easy to be down about a year when the ConDems have unleashed so much harm without a mandate to do so. But I am an optimist. And I think neoliberalism is on a last gasp. Change is coming. And 2010 showed that. That’s a casue for a quiet drink tonight.

Sarkozy: a man with ambition for 2011

Secrecy jurisdictions, Tax Havens 3 Responses »

Dec 312010

The Guardian notes that the French president is a man with ambitions for 2011:

Sarkozy’s leadership of the G8′s six western powers and Russia and China, as well as his rotating presidency of the G20 forum of the largest economies, will focus on his ambitious plans to overhaul the financial system. He wants a new monetary system that does not depend on the dollar, to eradicate tax havens, stabilise commodities markets and tax international transactions.

I added the emphasis.

I’m not a Sarkozy person. But on these issues he’s got it right and is bang on what is needed. Good luck to him for that reason alone.

Don’t doubt that the major corporates are still tax avoiding for all it’s worth

Deloittes, KPMG, Tax avoidance, USA 4 Responses »

Dec 312010

Bloomberg have produced another of Jesse Drucker’s stunning reports on tax avoidance in the last couple of days.

This one is wholly US focussed, but has a strong offshore element and a much broader appeal than the US market because it shows two key things. First that business is still demanding tax favours, even when not due. Second, it shows that old hands in the game like KPMG are still well and truly active.

I’m not going to in any way summarise the arguments in an important article. Just a few extracts:

At the White House on Dec. 15, business executives asked President Obama for a tax holiday that would help them tap more than $1 trillion of offshore earnings, much of it sitting in island tax havens.

The money — including hundreds of billions in profits that U.S. companies attribute to overseas subsidiaries to avoid taxes — is supposed to be taxed at up to 35 percent when it’s brought home, or “repatriated.” Executives including John T. Chambers of Cisco Systems Inc. say a tax break would return a flood of cash and boost the economy.

But as Drucker notes later:

The argument that a new tax break for offshore earnings would generate a domestic stimulus “holds no water at all,” said Joel B. Slemrod, an economics professor at the University of Michigan’s school of business and former senior tax economist for President Reagan’s Council of Economic Advisers. U.S. companies are already sitting on a record pile of cash — $1.9 trillion in liquid assets, according to Federal Reserve data.

“The fact that they have these cash hoards suggests that investment is not being constrained by lack of cash,” Slemrod said.

I am convinced that is true. So what is this about?:

The tax benefits from such profit shifting can have a greater impact on share price than boosting sales or cutting other expenses, since the reduced rate goes straight to the bottom line, said John P. Kennedy, a partner at Deloitte Tax LLP, speaking at the conference in Philadelphia Nov. 3.

In other words, tax avoidance is about aggressively boosting earnings in the short term – and as I have long argued, that’s linked to executive options:

“You may think two bucks isn’t much, but when you’re the CFO and she has 100,000 options, that’s pretty interesting,” [Kennedy] said. He cited large pharmaceutical and biotech companies, including Merck, Amgen Inc. and Eli Lilly, which have reported effective income tax rates at least 10 percentage points below the statutory 35 percent rate.

This link has to be broken. It’ a vital policy issue.

But there’s also the issue of the sheer waste of this whole industry. The description of what KPMG is up to is detailed, and will I suspect to many be deeply unattractive however legal it might be. To quote Drucker again:

“Some of the best minds in the country are spent all day, every day, wheedling nickels and dimes out of the tax system,” said H. David Rosenbloom, an attorney at Caplin & Drysdale in Washington, D.C., and director of the international tax program at New York University’s school of law.

Let’s not pretend the tax avoidance game has stopped: it hasn’t. It’s real, and it costs the rest of us money by shifting the burdens of tax onto those least able to pay. And that’s why it is wrong.

Creating an onshore nation is the only way to restore financial sovereignty

Corporation Tax, Secrecy jurisdictions, Tax avoidance, Tax Havens, Tax justice 13 Responses »

Dec 302010

More good argument on the right direction for tax reform, this time from William Brittain-Catlin in the Guardian:

Governments of progressive nations should leave offshore tax havens and their clients to their own devices, and instead boldly declare that they will refuse to have on their soil any corporation, individual, financial entity or transaction that has an offshore connection through which profits (as well as toxic, hidden losses) are funnelled away to third party jurisdictions.

Onshore you’re in, offshore you’re out, simple as that. And let us subject every company and individual to the onshore test: a rigorous due diligence investigation to make sure that there is absolutely no offshore tax haven link to any company or person that wishes to use the onshore nation as place to do business in. Those that pass the onshore test will then be welcomed to join in and establish the new order.

Brittain-Catlin argues there is a trade off in this. he’s right. I’m not sure he’s got the trade off right, but this is the direction for travel now.

The FT gets it right on interest

Economics 5 Responses »

Dec 302010

The FT has got on the right track again in an article today that says:

The depth of the recent financial crisis was largely due to excessively high leverage, or debt-to-equity ratios. Both banks and corporates were heavily indebted at the onset of the financial crisis as low interest rates promoted cheap debt financing.

But there is also a structural bias towards debt financing that encourages companies to take on debt rather than equity. While the cost of debt (interest) is deductible from corporate tax, the cost of equity (dividends) is not. In the wake of the financial crisis, this needs to be addressed – and with urgency.

This is a complex area for reform because of the interaction with personal taxation, but that does not mean it need not be addressed.

Now is the time to do so.

Dilbert and the Dutch Sandwich

Tax avoidance 1 Response »

Dec 292010

Jesse Drucker of Bloomberg made the “Dutch Sandwich” famous this year when writing about Google’s tax.

Last evening he drew this to my attention:

That pretty much says it all about corporate tax avoidance of this sort.

Tax Justice Network – a Guide for New Members

Tax justice, Tax Justice Network Comments Off

Dec 292010

The Tax Justice Network is, apparently, getting lots of messages of interest about joining. So it ha produced a guide for those who want to know how to and what it means.

It’s here for those interested.